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Increased Medicare Tax Due on Wages Earned in 2013

The IRS recently issued guidance regarding the additional 0.9% Medicare tax applied to wages and compensation, as well as self-employment income, above a threshold amount received after December 31, 2012.

The additional 0.9% tax is in addition to the regular Medicare rate of 1.45% on wages received by employees with respect to employment. The employer portion, however, remains at 1.45%.

In 2013, an employer pays a 7.65% FICA tax, consisting of:

a) 6.20% Social Security tax on the first $113,700 of an employee’s wages

b) 1.45% Medicare tax on the employee’s total wages

In 2013, an employee will pay:

6.20% Social Security tax on the first $113,700 of wages

1.45% Medicare tax on the first $ 200,000 of wages for single taxpayers ($ 250,000 MFJ)

2.35% Medicare tax (1.45% + 0.9% additional) on all wages in excess of $ 200,000 for single taxpayers ($250,000 MFJ)

In 2013, self-employed individuals will pay:

12.40% OASDI on the first $113,700 of self-employment income

2.90% Medicare tax on the first $200,000 of self-employment income for single taxpayers ($250,000 of combined self-employment income for MFJ)

3.80% (2.90% + 0.9% additional) on all self-employment income in excess of $200,000 for single taxpayers ($250,000 of combined self-employment income for MFJ)

Employers are required to withhold additional Medicare tax from wages in excess of $200,000, including fringe benefits, group-term life insurance in excess of $50,000, third-party sick pay, and tips. In the event a taxpayer knows that, jointly with his/her spouse, they will not make more than $250,000 (ex. Although one spouse makes over $200,000, the other has no earnings), the employer is still required to withhold the additional 0.9% Medicare tax.

Have questions on how the additional 0.9% Medicare tax applies to you? Please contact ourTax Planning and Preparation Group at 440-449-6800.